[Federal Register Volume 60, Number 157 (Tuesday, August 15, 1995)]
[Notices]
[Pages 42205-42209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20157]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36070; International Series Release No. 837 File Nos. 
SR-Amex-94-55 and SR-CBOE-95-01]


Self-Regulatory Organizations; American Stock Exchange, Inc., and 
Chicago Board Options Exchange, Inc., Order Approving Proposed Rule 
Changes Relating to the Listing and Trading of Warrants on the 
Deutscher Aktienindex (``DAX Index'')

August 9, 1995.

I. Introduction

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ on December 5, 1994, the 
American Stock Exchange, Inc. (``Amex'') filed with the Securities and 
Exchange Commission (``Commission''), and on January 5, 1995, the 
Chicago Board Options Exchange, Inc. (``CBOE'') filed with the 
Commission, proposed rule changes to list and trade warrants on the 
Deutscher Aktienindex (``DAX Index'' or ``Index''). The Amex and the 
CBOE are collectively referred to herein as the ``Exchanges.'' Notices 
of the proposals appeared in the Federal Register on January 26, 
1994.\3\ The Commission received three comment letters concerning the 
proposed rule changes.\4\ This order approves the Amex and the CBOE 
proposals.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
    \3\ See Securities Exchange Act Release Nos. 35249 (January 19, 
1995), 60 FR 5236 (notice of File No. SR-Amex-94-55), and 35247 
(January 16, 1995), 60 FR 5233 (notice of File No. SR-CBOE-95-01).
    \4\ All three letters were submitted on behalf of the Deutsche 
Borse AG, the Frankfurt Stock Exchange (``FSE''), and the Deutsche 
Terminborse (``DTB''). The Deutsche Borse AG is a holding company 
formed in 1993 for the purpose of, among other things, assuming 
ownership and control of the FSE and the DTB. See Letter from 
Lawrence Hunt, Jr., Sidley & Austin, to Margaret McFarland, Deputy 
Security, Commission, dated March 21, 1995 (commenting on File No. 
SR-Amex-94-55), and letter from Lawrence Hunt, Jr., Sidley & Austin, 
to Margaret McFarland, Deputy Secretary, Commission, dated March 21, 
1995, (collectively, ``Comment Letters''). The commenters 
subsequently submitted a follow-up statement to the Comment Letters. 
See Letter from Lawrence Hunt, Jr., Sidley & Austin, to Margaret 
McFarland, Deputy Secretary, Commission, dated July 19, 1995 (``July 
19 Letter'').
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II. Description of the Proposals

    The Amex and the CBOE propose to list index warrants based on the 
DAX Index.

A. Composition and Maintenance of the Index

    The DAX Index is a capitalization-weighted index of 30 German 
equity securities listed on the Frankfurt Stock Exchange (``FSE''). The 
capitalization of a particular stock in the Index is 

[[Page 42206]]
calculated by multiplying its listed capital\5\ by the price of the 
common stock (or if the common stock is not listed, the preferred 
stock) and a multiplier determined by the FSE. The stocks included in 
the DAX Index are among the largest German corporations, whose shares 
are among the most actively traded of German issuers. The Index is 
composed of securities representing more than ten broad industry 
groups, including chemicals, automobile manufacturers, banks, and 
insurance companies.\6\

    \5\ Listed capital for a component security is determined based 
on an issuer's preferred and common shares registered for trading on 
the FSE. This is different from domestic capitalization-weighted 
indexes, such as the S&P 500 Index, the values of which are 
calculated based only on the shares of the issuer's common stock.
    \6\ The components of the Index are: Allianz AG Holdings; BASF 
AG; Bayer AG; Bayer Hypo/Wech; BMW; Bayer Vereinsbank AG; 
Commerzbank AG; Continental AG; Daimler-Benz AG; Deutsche Babcock 
AG; Deutsche Bank AG; Degussa AG; Dresdner Bank AG; Henkel KGAA-Pfd; 
Hoechst AG; Karstadt AG; Kaufhof Holdings AG; Lufthansa AG; Linde 
AG; Man AG; Metallgesellschaft; Mannesmann AG; Preussag AG; RWE AG; 
Schering AG; Siemens AG; Thyssen AG; Veba AG; Viag AG; and 
Volkswagen AG.
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    The Index had a closing value of 2,184.33 on July 20, 1995. As of 
December 2, 1994, the 30 stocks comprising the Index ranged in 
individual market capitalizations from a low of approximately DM 1.17 
billion (US. $841.73 million)\7\ to a high of approximately DM 50.59 
billion (U.S. $36.40 billion) with a mean capitalization of DM 13.88 
billion (U.S. $9.99 billion). Also as of that date, the five largest 
stocks in the Index accounted for approximately 43.69% of the total 
weight of the Index with no single security accounting for more than 
12.15% of the weight of the Index. Average daily trading volume in the 
components of the Index for the period from June 1, 1994, through 
November 30, 1994, ranged from a low of 59,408 shares to a high of 
1,042,280 shares, with an average daily trading volume for an Index 
component during that period of 338,449 shares.

    \7\ Based on a current German mark/U.S. dollar exchange rate of 
approximately DM 1.39/U.S. $1.
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B. Calculation and Dissemination of the Index Value

    The value of the DAX Index is calculated every minute by the FSE 
from 10:30 a.m. to 1:30 p.m., Frankfurt time (4:30 a.m. to 7:30 a.m. 
Eastern time), based on last sale prices of the component stocks. The 
value of the Index is disseminated over Reuters News Service, among 
others. The value of the Index, however, is not disseminated by the FSE 
until opening prices are available for at least 15 components of the 
Index representing at least 70% of the capitalization of the Index. 
Thereafter, with respect to any stock that has not yet opened for 
trading, the Index value is calculated using the previous day's closing 
price for those components.
    In order to maintain continuity of the value of the Index, the FSE 
adjusts the Index to reflect certain events relating to the component 
stocks. For example, the FSE adjusts the Index value to reflect cash 
dividends paid on the component securities.\8\ An adjustment is also 
applied by the FSE whenever a company issues new shares for which the 
shareholders have preemptive rights, or when other intra-year events, 
such as mergers and spinoffs, occur.

    \8\ The FSE makes this adjustment because German companies 
usually pay their dividends only once per year (generally in June or 
July). If not adjusted, the annual dividend payment would result in 
a significant drop in the value of the Index at the time when the 
dividends are paid. As a result, the FSE calculates the dividend 
adjustment such that share prices reflect full dividend 
reinvestment.
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    The number of listed shares of each stock used in the calculation 
of the value of the Index is updated by the FSE annually in September. 
At that time, the adjustment factors mentioned above, which reflect the 
dividend payments and/or intra-year adjustments, are re-scaled to one, 
with an additional adjustment made to maintain continuity in the value 
of the Index.
    In addition, the composition of the Index is reviewed periodically 
by the FSE. It is the FSE's policy not to alter the composition of the 
DAX Index unless a stock ceases to meet the criteria that initially 
were the basis for including the stock in the Index. Replacements are 
usually made from a list of substitute stocks. If it is not possible to 
substitute a stock from the same industry group, a stock from another 
industry may be substituted.
C. Index Warrant Trading

    The Amex proposes to list DAX Index warrants pursuant to Section 
106 of the Amex Company Guide (``Guide''). Under Amex's rules, the Amex 
may approve for listing warrants on established foreign and domestic 
market indexes. The CBOE has similar authority to list warrants on 
foreign indexes pursuant to CBOE Rule 31.5(E).
    The Amex and the CBOE represent that Index warrant issues will 
conform to the index listing guidelines contained in Section 106 of the 
Guide and CBOE Rule 31.5(E), respectively. Specifically, the listing 
guidelines of the Exchanges require that: (1) issuers of DAX Index 
warrants will be have assets in excess of $100,000,000 and otherwise 
substantially exceed the Exchanges' size and earnings requirements; \9\ 
(2) the term of warrants will be for a period ranging from one to five 
years from the date of issuance; and (3) the minimum public 
distribution of such issues will be 1,000,000 warrants, with as minimum 
of 400 public holders, and a minimum aggregate market value of 
$4,000,000.

    \9\ See Amex Guide Section 101 and CBOE Rule 31.5A.
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    The Exchanges will apply the same margin treatment for the purchase 
of Index warrants as they require for listed options.\10\

    \10\ Telephone conversation between Claire McGrath, Managing 
Director and Special Counsel, Derivative Securities, Amex, and Brad 
Ritter, Senior Counsel, Office of Market Supervision, Division of 
Market Regulation, Commission, on July 21, 1995. See Amex Rule 462 
and CBOE Rule 12.3.
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    The proposed Index warrants will be direct obligations of their 
issuers subject to cash-settlement in U.S. dollars, and either 
exercisable throughout their life (i.e., American-style) or exercisable 
only immediately prior to their expiration date (i.e., Europe-style). 
Upon exercise, the holder of an Index warrant structured as a ``put'' 
will receive payment in U.S. dollars to the extent that the DAX Index 
has declined below a cash settlement value specified at the time of 
issuance. Conversely, upon exercise, holders of an Index warrant 
structured as a ``call'' will receive payment in U.S. dollars to the 
extent that the DAX Index has increased above a cash settlement value 
specified at the time of issuance. Index warrants that are ``out-of-
the-money'' at the time of expiration will expire worthless.
    Because index warrants are derivative in nature and closely 
resemble index options, the Exchanges will also require that DAX Index 
warrants be sold only to customers whose accounts have been approved 
for options trading.\11\ Second, the Exchanges' options suitability 
standards will apply to recommendations in Index warrants.\12\ Third, 
the exchanges' rules regarding discretionary orders will also apply to 
transactions in Index warrants.\13\

    \11\ See Amex Rule 921 and CBOE Rule 9.7.
    \12\ See Amex Rule 411, Commentary .02 and CBOE Rule 9.9.
    \13\ See Amex Rule 421, Commentary .02 and CBOE Rule 30.50, 
Interpretation .04 (requiring that the standards of Rule 9.10 be 
applied to index warrant transactions).
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    Prior to the commencement of trading of Index warrants, the 
Exchanges will distribute circulars to their members calling attention 
to certain compliance responsibilities when handling transactions in 
Index warrants. 

[[Page 42207]]


D. Surveillance

    The Exchanges will use their existing surveillance procedures to 
monitor trading in Index warrants. The Exchanges represent that they 
are currently negotiating to enter into separate surveillance sharing 
agreements with the FSE.
    Both the Amex and the CBOE have submitted to Commission approval a 
proposed rule change governing, among other things, customer protection 
and margin requirements for stock index warrants, currency index 
warrants, and currency warrants.\14\ DAX Index warrants issued 
subsequent to approval of those proposals will be subject to these new 
rules.

    \14\ See Securities Exchange Act Release Nos. 35086 (December 
12, 1994), 59 FR 65561 (December 20, 1994) (notice of File No. SR-
Amex-94-38), and 35178 (December 29, 1994), 60 FR 2409 (January 9, 
1994) (notice of File No. SR-CBOE-94-34).
III. Comment Letters

    Three comment letters were received by the Commission--one 
discussing the CBOE proposal, one discussing the Amex proposal, and one 
follow-up letter discussing both proposals. All three comment letters 
were submitted on behalf of the Deutsche Borse AG, DTB, and FSE. The 
first two letters received raised the same issues concerning the 
respective proposals.\15\ The commenters assert that the FSE has a 
proprietary interest in the DAX Index which vests the FSE with the 
exclusive right to license its use for trading index products based on 
the DAX Index. According to the commenters, even if the Amex and CBOE 
had any rights to use the DAX Index or the ``DAX'' name, those rights 
either lapsed or were terminated by the Deutsche Borse AG.\16\ As a 
result, the commenters argue that the proposals raise issues concerning 
intellectual property rights which should be resolved prior to 
Commission approval of the proposals.

    \15\ See Comment Letters, supra note 4.
    \16\ Id. The commenters, however, have informed the Commission 
that the Deutsche Borse AG is currently negotiating with the CBOE 
and the Amex for purposes of licensing the DAX Index and the DAX 
name to the Exchanges for purposes of listing DAX Index warrants. 
See July 19 Letter, supra note 4.
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    Similarly, the commenters also assert that all surveillance 
agreements between the FSE and each of the Exchanges have either lapsed 
or been terminated by the Deutsche Borse AG.\17\ As a result, the 
commenters conclude that it would be impossible for the Commission to 
find that the proposed DAX Index warrants would not be susceptible to 
manipulation. The commenters, however, have informed the Commission 
that the Deutsche Borse AG is currently negotiating with the CBOE and 
the Amex for purposes of entering into market surveillance agreements 
with each Exchange.\18\

    \17\ See Comment Letters, supra note 4.
    \18\ See July 19 Letter, supra note 4.
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    Based on these arguments, the commenters conclude that it would be 
inappropriate for the Commission to approve the proposed rule changes 
until these issues are resolved.\19\

    \19\ See Comment Letters, supra note 4.
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IV. Commission Findings

    The Commission finds that the proposed rule changes are consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5) of the Act.\20\ 
Specifically, the Commission believes that the trading of warrants 
based on the DAX Index will serve to protect investors, promote the 
public interest, and help to remove impediments to a free and open 
securities market by providing investors with a means to hedge exposure 
to market risk associated with the German equity market and provide a 
surrogate instrument for trading in the German securities market.\21\ 
The trading of warrants based on the DAX Index should provide investors 
with a valuable hedging vehicle that should reflect accurately the 
overall movement of the German equity market.

    \20\ 15 U.S.C. Sec. 78f(b)(5) (1988).
    \21\ Pursuant to Section 6(b)(5) of the Act, the Commission must 
predicate approval of any new securities product upon a finding that 
the introduction of such product is in the public interest. Such a 
finding would be difficult with respect to a warrant that served no 
hedging or other economic function, because any benefits that might 
be derived by market participants likely would be outweighed by the 
potential for manipulation, diminished public confidence in the 
integrity of the markets, and other valid regulatory concerns.
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    In addition, the Commission believes, for the reasons discussed 
below, that the Amex and the CBOE have adequately addressed issues 
related to customer protection, index design, surveillance, and market 
impact of DAX Index warrants.

A. Customer Protection

    Due to the derivative nature of index warrants, the Commission 
believes that DAX Index warrants should only be sold to investors 
capable of evaluating and bearing the risks associated with trading in 
such instruments and that adequate risk disclosure be made to 
investors. In this regard, the Commission notes that the rules and 
procedures of the Exchanges that address the special concerns attendant 
to the secondary market trading of index warrants will be applicable to 
DAX Index warrants. In particular, by imposing the special suitability, 
account approval, disclosure, and compliance requirements noted above, 
the Amex and the CBOE have adequately addressed potential public 
customer problems that could arise from the derivative nature of DAX 
Index warrants. Moreover, the Amex and the CBOE plan to distribute 
circulars to their members identifying the specific risks associated 
with warrants on the DAX Index. Finally, pursuant to the Exchanges' 
listing guidelines, only substantial companies capable of meeting their 
warrant obligations will be eligible to issue DAX Index warrants.

B. Index Design and Structure

    The Commission finds that it is appropriate and consistent with the 
Act to classify the Index as a broad-based index. Specifically, the 
Commission believes the Index is broad-based because it reflects a 
substantial segment of the German equity market. First, the Index 
consists of 30 actively traded stocks listed by the FSE. Second, the 
market capitalizations of the stocks comprising the Index are very 
large. Specifically, the total capitalization of the Index, as of 
December 2, 1994, was approximately U.S. $299.55 billion, with the 
market capitalizations of the individual stocks in the Index ranging 
from a high of $36.40 billion to a low of $841.73 million, with a mean 
value of $9.99 billion.\22\ Third, no one particular stock or group of 
stocks dominates the weight of the Index. Specifically, as of December 
2, 1994, no single stock accounted for more than 12.15% of the Index's 
total value, and the percentage weighting of the five largest issues in 
the Index accounted for 43.69% of the Index's value. Accordingly, the 
Commission believes it is appropriate to classify the Index as broad-
based.

    \22\ These figures are based on the German mark values as of 
December 2, 1994, but converted to dollars using the current 
exchange rate of approximately DM 1.39/U.S. $1.00.
C. Surveillance

    As a general matter, the Commission believes that comprehensive 
surveillance sharing agreements between the relevant foreign and 
domestic exchanges are important where an index derivative product 
based on foreign securities is to be traded in the United States.\23\ 
In most 

[[Page 42208]]
cases, in the absence of such a comprehensive surveillance sharing 
agreement, the Commission believes that it would be difficult to 
conclude that an exchange listing a derivative product, such as a DAX 
Index warrant, would be able to monitor effectively trading involving 
the derivative product. Indeed, in commenting on the DTB's application 
to offer and sell DAX Index futures to U.S. persons, the Commission 
relied, in part, on the existence of a surveillance sharing agreement 
between the FSE and the DTB.\24\

    \23\ A comprehensive surveillance sharing agreement would allow 
the parties to the agreement to obtain relevant surveillance 
information, including, among other things, the identity of the 
ultimate purchasers and sellers of securities.
    \24\ See Letter to Elisse B. Walter, General Counsel, Commodity 
Futures Trading Commission (``CFTC''), from Brandon Becker, 
Director, Division of Market Regulation (``Division''), Commission, 
dated November 21, 1994.
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    With regard to the Amex and CBOE proposals, the Commission would 
prefer that comprehensive surveillance agreements be in place, and 
believes that such agreements play a particularly important role in 
ensuring the integrity of global securities markets. The Deutsche Borse 
AG, however, terminated license and market surveillance agreements 
between the FSE and the Exchanges as part of a now completed strategic 
review relating to competitive concerns surrounding the trading of the 
DAX Index products by the Exchanges.\25\ Since completion of the 
strategic review, the Deutsche Borse AG has decided to commence active 
negotiations with the Exchanges regarding their listing and trading of 
DAX Index warrants and for the purpose of entering into new market 
surveillance sharing agreements.\26\ The Commission views these new 
efforts favorably, and believes that a major market such as the FSE 
should readily enter into comprehensive surveillance sharing 
agreements.\27\ Even in the absence of such agreements, however, the 
Commission does not believe that the Exchanges' proposals should 
continue to be detained pending the conclusion of these negotiations 
when an alternative with respect to obtaining surveillance information 
exists for the DAX Index products. Specifically, the U.S. Department of 
State and the German Foreign Office have exchanged Diplomatic Notes 
that provide a framework for mutual assistance in investigatory and 
regulatory matters (``Diplomatic Notes'').\28\ The Diplomatic Notes 
confirm that the Commission is qualified to obtain assistance through 
the German Ministry of Justice under German law. Based on the existence 
of the Diplomatic Notes, the Commission believes that the German 
governmental authorities are committed to assistance in addressing 
cross-border fraud. In addition, the Commission could obtain from the 
German Ministry of Justice (and vice versa) information similar to that 
which would be available in the event that a comprehensive surveillance 
sharing agreement were executed between the FSE and the Amex and the 
CBOE with respect to transactions in FSE-traded stocks related to DAX 
Index warrant transactions on the Amex and the CBOE.\29\ While this 
arrangement would certainly be enhanced by the existence of 
comprehensive surveillance sharing agreements, it is nonetheless 
consistent with other instances where the Commission has explored 
alternatives to direct exchange-to-exchange surveillance sharing 
agreements where the relevant foreign exchange was unwilling or unable 
to enter into a comprehensive surveillance sharing agreement.\30\

    \25\ See July 19 Letter, supra note 4. The commenters stated 
that ``[b]ecause of the amount of work and discretion involved in 
maintaining the DAX Index, under both federal and state law, [the 
FSE] has a proprietary interest in its Index, which vests it with 
the exclusive right to license its use for trading in stock index 
products.'' See Comment Letters, supra note 4.
    \26\ See July 19 Letter, supra note 4.
    \27\ Ideally, such agreements should be broad in nature rather 
than designed to cover a specific product, such as DAX Index 
warrants. The absence of broad surveillance agreements slows down 
the introduction of new international products by forcing the 
relevant exchanges to amend product-specific surveillance sharing 
agreements every time a new product is introduced.
    \28\ See International Series Release No. 691, 1994 SEC LEXIS 
2324 (July 22, 1994).
    \29\ It is the Commission's expectation that this information 
would include transaction, clearing, and customer information 
necessary to conduct an investigation relating to trading in DAX 
Index warrants or components of the DAX Index.
    \30\ See, e.g., Letter to David R. Merrill, Deputy General 
Counsel, CFTC, from Brandon Becker, Director, Division, Commission, 
dated April 20, 1994 (Commission comment letter to the CFTC 
regarding the offer by the Osaka Securities Exchange of futures 
contracts based on the Nikkei 300 Index to U.S. persons), and letter 
to Joanne T. Medero, General Counsel, CFTC, from William H. Heyman, 
Director, Division, Commission, dated January 16, 1992 (Commission 
comment letter to the CFTC regarding the offers by the Osaka Stock 
Exchange and the Tokyo Stock Exchange of futures contracts based on 
the Nikkei 225 and TOPIX Indexes to U.S. persons).
    In addition, the Commission notes that there are factors relating 
to the computation of the DAX Index that further support reliance on 
arrangements other than direct exchange-to-exchange surveillance 
agreements. Specifically, the size of the market for the securities 
underlying the DAX Index makes it less likely that the proposed Index 
warrants are readily susceptible to manipulation.\31\ For example, as 
of December 2, 1994, the market capitalization of the securities in the 
Index ranged from a low of approximately U.S. $841 million to a high of 
approximately U.S. $36 billion, and the average trading volume for 
individual Index component securities during the period from June 1, 
1994, through November 30, 1994, ranged from a low of 59,408 shares per 
day to a high of over one million shares per day.

    \31\ In evaluating the manipulative potential of a proposed 
index derivative product, as it relates to the securities that 
comprise the index and the index product itself, the Commission has 
considered several factors, including, among others, (1) the number 
of securities contained in the index or group, (2) the 
capitalizations of those securities, (3) the depth and liquidity of 
the group or index, (4) the diversification of the group or index, 
(5) the manner in which the index or group is weighted, and (6) the 
ability to conduct surveillance on the product. See Securities 
Exchange Act Release No. 31016 (August 11, 1992), 57 FR 37012 
(August 17, 1992).
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    The Commission continues to believe strongly that the existence of 
comprehensive surveillance sharing agreements between the appropriate 
German entity(ies) \32\ and each of the Exchanges would be important 
measures to deter and detect potential manipulations or other improper 
or illegal trading involving DAX Index warrants. Accordingly, the 
Commission urges the German parties and the Exchanges to continue in 
their present negotiations with the goal of finalizing formal 
comprehensive surveillance sharing agreements covering DAX Index 
warrants and the securities contained in the DAX Index as soon as 
practicable.\33\

    \32\ This would probably be the FSE and/or the Deutsche Borse 
AG. See July 19 Letter, supra note 4.
    \33\ See supra notes 23 and 27.
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D. Commission Response to Comment Letters

    The comment letters received by the Commission in response to the 
proposed rule changes raise two issues--one concerning the potential 
for manipulation as a result of the lack of surveillance sharing 
agreements between the American and German exchanges, and the other 
concerning the FSE's intellectual property rights in the DAX Index and 
the DAX name.\34\

    \34\ See Section III, supra.
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    As stated above, the Commission believes that, even though new 
surveillance sharing agreements between the Deutsche Borse AG and the 
Exchanges have not yet been finalized, the Diplomatic Notes provide, in 
the interim, both the Commission and the German Ministry of Justice 
with the ability to obtain and share information necessary, among other 
things, to investigate suspected attempts at manipulation of the 
trading of DAX 

[[Page 42209]]
Index warrants at the Exchanges and of the securities of which the DAX 
Index is composed. As a result, the Commission believes that the 
trading of DAX Index warrants by the Exchanges in the absence of 
comprehensive surveillance sharing agreements between the Exchanges and 
the relevant German entity(ies) does not raise any significant 
regulatory concerns.
    Similarly, the Commission believes that the commenters' concerns 
over the FSE's proprietary interest in the DAX Index and the DAX name 
do not preclude the Commission from approving the proposed rule 
changes. Specifically, to the extent that the commenters' argument 
raises a claim of misappropriation or infringement of a protected 
property right, the Commission believes it is inappropriate for the 
Commission to attempt to resolve these issues in a proceeding involving 
the approval of an exchange's proposed rule change under the federal 
securities laws. To take such delaying action whenever a third party 
claim is asserted could stifle Commission review of new products 
proposed by self-regulatory organizations. The plain language of the 
U.S. securities laws does not suggest that Congress intended that the 
Commission attempt, in the context of an approval proceeding for a 
securities product, to resolve intellectual property right claims that 
can be pursued elsewhere.\35\ Accordingly, the commenters' assertions 
do not form a basis for the Commission to either disapprove or delay 
approval of the Exchanges' proposals.\36\

    \35\ Congress has enacted an elaborate statutory framework for 
the establishment, preservation, and protection of intellectual 
property rights and has established specific federal agencies to 
administer these laws. Separate state causes of action also may be 
available to the holders of these proprietary rights, as well as 
possible recourse to German laws.
    \36\ See Securities Exchange Act Release Nos. 26709 (April 11, 
1989), 54 FR 15280 (April 17, 1989) (order approving the listing of 
index participations by the Amex, CBOE, and Philadelphia Stock 
Exchange), and 28475 (September 27, 1990), 55 FR 40492 (October 3, 
1990) (order approving the trading by the Amex of options on the 
Japan Index).
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V. Conclusion

    For the reasons described above, the Commission finds that the 
proposed rule changes by the Exchanges are consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange, and, in particular, the 
requirements of Section 6(b)(5).\37\ Specifically, the Commission finds 
that the listing and trading of warrants based on the DAX Index will 
serve to promote the public interest and help to remove impediments to 
a free and open securities market by providing investors with a means 
to hedge exposure to market risk associated with the German equity 
market and provide a surrogate instrument for trading in the German 
securities market.

    \37\ 15 U.S.C. Sec. 78f(b)(5) (1988).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\38\ that the proposed rule changes (File Nos. SR-Amex-94-55 and 
SR-CBOE-95-01), are approved.

    \38\ 15 U.S.C. Sec. 78s(b)(2) (1984).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\39\

    \39\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan, G. Katz,
Secretary.
[FR Doc. 95-20157 Filed 8-14-95; 8:45 am]
BILLING CODE 8010-01-M